The Cyclicality of Sales, Regular and Effective Prices: Business Cycle and Policy Implications

We study the cyclical properties of sales, regular price changes and average prices paid by consumers ("effective" prices) in a dataset containing prices and quantities sold for numerous retailers across a variety of US metropolitan areas. Both the frequency and size of sales fall when loc...

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Bibliographic Details
Published in:NBER Working Paper Series 2012-08, p.18273
Main Authors: Coibion, Olivier, Gorodnichenko, Yuriy, Gee Hee Hong
Format: Article
Language:English
Subjects:
Business cycles
Coffeehouses
Consumers
Economic conditions
Economic models
Economic policy
Economic statistics
Economic theory
Expected utility
Expenditures
Flexibility
Households
Inflation rates
Macroeconomics
Metropolitan areas
Price cuts
Prices
Sales
Studies
Unemployment
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Summary:We study the cyclical properties of sales, regular price changes and average prices paid by consumers ("effective" prices) in a dataset containing prices and quantities sold for numerous retailers across a variety of US metropolitan areas. Both the frequency and size of sales fall when local unemployment rates rise and yet the inflation rate for effective prices paid by consumers declines significantly with higher unemployment. This discrepancy can be reconciled by consumers reallocating their expenditures across retailers, a feature of the data which we document and quantify. We propose a simple model with household shopping effort and store-switching consistent with these stylized facts and document its implications for business cycles and policymakers.
ISSN:0898-2937
DOI:10.3386/w18273